Want Growth? Part II: Show Me the Incentive

Want Growth? Part II: Show Me the Incentive

“People do things for their own reasons, not for our reasons.” – William Marston

My seat mate on a recent flight owns a successful small business. It is growing in a down economy because he has a product that saves his customers significant money and increases employee productivity. He tells me that his business has the potential to triple in revenues in the next three to five years.

“So does the proposed reduction in employment taxes encourage you to hire new staff,” I asked.

“I need to hire more staff regardless of the reduction in employment taxes,” he said. His biggest question was why should he bother to grow the business if the potential to lose half of the extra money he makes in taxes.

My seat mate’s incentive to grow is the money he’ll make if and when he sells it. That, however, requires him to do something rare – put off short-term pleasure for long-term gain.

Last week’s blog explored how mistrust affects our ability to grow. This week, we’ll ask an important question: Why bother?

The answer to this question affects businesses, sources of capital, individuals, and of course, governments. Consider this:

• The U.S. Labor Department reported 3.2 million job openings in July 2011. That is a long way from putting 15 million people back to work, but it is a start. Some of these vacancies were probably unfilled due to lack of available talent (we’ll address that in the future), but many were going vacant because people found no incentive to take them.
• As of August 2011, companies listed on the S&P 500 had $837 billion in available cash on hand. Lack of trust in future conditions has some impact, but so does the lack of incentive to take a risk and invest those funds in people, equipment, or other vehicle to promote growth.
• Banks, according to reports from the Federal Deposit Insurance Corporation (FDIC), have reduced lending every quarter except one since June 2008. Banks have every incentive to lend money since that is how the earn money. Unfortunately, the incentive to hold on to their assets is much stronger thanks to increased regulatory pressure and toxic assets.

How about you? What is your incentive to make the changes or invest the effort necessary to grow? People and organizations, at least the vast majority of them, change for one of two reasons: Crisis pushes them to change or opportunity pulls them to change.

Crisis works in the short term. The problem is sustaining momentum after the crisis has been averted. Opportunity is a much more sustainable option if you can personalize it to the individual situation. Here’s the message for leaders:

Every business needs growth to survive. Perpetual cost cutting to maintain profits at the exclusion of growth is a guaranteed path to obscurity or worse. What are you doing to kill the incentive to grow? One place to start looking is the practicing of capping commissions. And, what are you doing to incent sustainable growth?

Every individual must grow – at least some – to maintain relevance in their current job. And if you really want to increase your value in the marketplace, there is no better way than to grow your knowledge and skills. We are all paid based on the size, complexity, and value of the problems we solve. Staying the same and refusing to grow is an invitation to be replaced.

Every government must create incentives and remove barriers for businesses and individuals to grow if it wants to sustain and improve services. Regulation is sometimes necessary to protect the public’s interest, and it creates friction in the marketplace through increased costs. Every policy and regulation must be evaluated on one simple criterion: How can we protect the public interest while encouraging growth?

Does Incentive Really Spur Growth?

My uncle was a minister in a relatively small church in a small town. He was provided a house, utilities, and basic expenses necessary to do his job during his decades of service. His remaining compensation came from the contributions that filled the offering plate during each service.

I once asked him why he didn’t take a salary. The members of his church loved him, and I was sure that they would reward him for his years of service with a stable income.

His response was, “I learned a long time ago that a hungry dog hunts better.”

The same principle applies to you and your organization. My uncle could grow his revenue by being so good at what he did that his members were willing to pay him more or that he attracted new members. Substitute customers for members and you have your situation. You can also insert your definition of growth if it involves something other than revenue.

So are you hungry? If you are you’ll seize the opportunity and take the actions to grow.

If you, your organization, or even your community has lost the hunger to grow, what will it take to restore it?
What do you, as a leader, need to stop doing that is killing the incentive to grow? What is the crisis that is so devastating that you are pushed to grow and avoid it? And most important, what is the opportunity that is so compelling that you can’t wait to capture it? Answer these questions, and you will create the energy and focus to mobilize action.

Tune in next week for part three of this series on growth. We take on the topic of talent.

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Randy Pennington is an award-winning author and a leading authority on helping organizations deliver positive results in a world of accelerating change. To learn more or to hire Randy for your next meeting, visit www.penningtongroup.com or call 972-980-9857.